Year 2021- Resilient Now ever!
Sustainability:
• Pakistan boom-bust life cycle appears cyclical than sustainable in past. This is reflected from past global commodity, political or economic shocks of 1998, 2009, & 2018, where economy got busted in very short interval of time
• Unlike past, PTI government has managed to bring the sustainability to macroeconomics. Despite the most devastating health and Economic Shocks of century i.eCOVID-19 and recent multi decade high-price commodity shock, Pakistan economy has displayed the greatest resilience, which is unprecedent in the 74-year history of Pakistan.
• Pakistan’s macroeconomic performance was widely accepted by all international macro-economic Financial Institutions (Including IMF, World Bank, ADB, Moody’s, S&P and Fitch etc.)
• The government’s response to the pandemic has been widely acclaimed and recognised. According to The Economist, Pakistan has been ranked number 1 in the ‘Economists’ world normalcy index as the country has lifted most of its COVID-19 restrictions imposed to curb the virus spread.
• The Economist normalcy index offers some evidence about how people are responding to restrictions in real-time. Pakistan is followed by Nigeria, Britain & Germany on the list which was updated on November 5, 2021
• Pakistan has rolled out the largest social safety net in Pakistan’s history. According to World Bank report “global social protection responses to Covid-19” (May-2021) Pakistan ranks 4th globally in terms of the number of people covered and 3rd globally in terms of the percentage of population covered amongst those that covered over 100 million people; the World Bank has stated that only few countries have attained impressive six-digit levels in this regard. Pakistan’s Ehsaas Emergency Cash is one of them.
Response to Covid:
• It is important to note that, Pakistan’s response to COVID is most effective and timely than rest of the world, despite the fiscal constraints. The Vision of Prime Minister Imran Khan of implementing the smart lockdown is the most appropriate, which allowed the economy to grow. Followings initiatives provided by PTI government & SBP for the relief of the masses.
• A fiscal relief package of Rs1,240bn to provide relief to neutralize the socio-economic impact of Covid-19
• Over all Rupees 2,073bn relief package by SBP
• Introduced Running Finance Facility for Hospitals and new Industrial Investments (TERF)
• Introduced Rozgar Scheme to prevent layoffs by financing wages and salaries of employees
• Provided relief for loan restructuring to borrowers
• SBP reduced the policy rate by 625bps
• Electricity bill concessions Rupees 46 billion and to SMEs Rupees 50.6 billion
• Reduction in winter tariffs @11.97/KWh & @12.96/KWh in 2020 & 2021
• Relief to 8mn families under Ehsas program from 3.7mn before PTI government
• Total release of Rs232 funds under Ehsas program in 2021 from Rupees 102 billion in 2014
• 106bn under Mera Pakistan MeraGhar, low-cost housing scheme loans have been approved by banks
Growth:
• Importantly, economy performed above expectations; GDP growth 4%, tax collection exceeded above targets, reserves improved, current account reported lowest since 2011
• The key to note that this growth was achieved when rest of the world was encountering massive output contraction. India (-8%), UK (-10%), USA (-3.7%), Iran (-6.5%)
• While Pakistan growth was broad-based. Against 2.1% target the growth came in at 3.94%.
• Agriculture at 2.77%, Industry 3.57%, and Services at 4.43%
• It is pertinent to note that record bumper crops witnessed in 2021 and the trend likely to continue next year as well
• Rice came in at 8.4 million tons (last year 7.4mn tons), Maize 8.5 million tons (last year 7.9 million tons), wheat 27.5 million tons (last year 25.2 million tons), cotton 7.1 million bales (last year 9.1 million bales)
• In 2022, sugarcane is expected at 87.7 million tons, wheat 28.9 million tons, and Rice 8.8 million tons.
Corporate Sector:
• Interest rates remained lower for most of the year at 7%, which gave impetus to private sector
• Aggregate profit after tax of KSE-100 in 3Q of 2021 is reported at Rupee 258 billion. The Highest in the last 10 years
• The growth is broad based, corporate sector has posted the record profitability of Rupees 929 billion in FY21, up from Rupee 587 billion in 2018
• Overall, 247% growth in companies’incorporation (69,380 companies during July-2018 to Dec-21 reported, compared to 19,996 companies in the last three years of PMLN government)
• 44% of total 157,000 companies registered in Pakistan incorporated in the PTI’s 3 years
• Sector wise, Real Estate (494%), IT Sector (194%), & Tourism (136%) growth witnessed from 2018-21
• Record number of 19 IPO’s worth Rupee 85 billion executed in the last three year
External Sector:
• Remittances and exports are above than pre-Covid level of 2019-20. This in turn, current account deficit posted 10 years low of US$1.9bn in FY21
• Exports of Goods came in at $25.6bn, up 14% higher in FY21.
• First time in the last ten years, exports indicators are looking promising and the average monthly exports now targeting US$3bn from US$2bn as in PMLN time
• Exports of services is another area where significant improvements have been witnessed. Services exports in FY21 also increased by 10% to US$5.9bn
• IT sector exports have doubled from PMLN time and expected to reach US$3.5bn to US$4bn, up 300% by the end of this government’s term
• While remittanceshave piled up to record level to US$29.4bn, from US$23.1bn year earlier
• The other hallmark of PTI government in its three years was the contraction of unnecessary imports and imports substitution. However, recent commodity price shock has jacked up the imports
• As per our analysis, the 80-85% of import surge is due to price affect and 15-20% is quantitative in line with economic growth
• Recent policy actions are already fetching results and import growth is expected to slow down. Moreover, given the better-than-expected agriculture crop outlook, the food import will be curtailed.
Fiscal:
• Federal taxes registered a record growth in FY21 and came almost Rupee one trillion more than 2018 level at Rupee 4,764 billion
• Similarly, the growth in non-tax revenue has witnessed a massive increase to Rupee 1,630 billion
• Overall, the deficit situation has improved to 7.1% of GDP from 8.1% in FY20
• The primary balance is also contained to 1.4% from 1.8% of GDP year earlier
• This year tax situation is even better than last year and Pakistan is likely to post Rupee 6 trillion tax target and more than Rupee 1,200 billion in a single year
• So far due to excellent tax collection the primary balance has reported a surplus of Rupee 206 billion in the first four month of current fiscal year
Inflation:
• Following Budget FY22, global commodity prices surged to unprecedented levels, triggering pressure on currencies and pushing higher inflation around the world
• As per FAO world food prices climbed 27%, 10-year peak
• CRB Index climbed 37.67% year-over-year
• Bloomberg Commodity index increased 28.4% in a year
• USA CPI climbed by 6.8% in November, the fastest pace since 1982
• German Inflation at 5.2% in November, highest rate since June 1992
• UK 10 Year high inflation witnessed at 5.1%
• China factory inflation is at 26 years high at 12.9%
• India WPI hits record high at 14.23%
• CPI in Pakistan cloaked in at 11.5% in November 2021, while it is interesting to note that recently the price of food is witnessing a significant decline
• Onions down 25% YoY, Pulse Moong 25%, Tomatoes 17%, Eggs 10%, Chicken 10% and Potatoes 8%
• While the prices of Wheat flour, rice and sugar depicted a stability
Ehsaas Program:
• Under Ehsaas Emergency Cash Program, the government has disbursed Rs 179.3 billion to 14.8 million beneficiaries to provide immediate cash relief of Rs 12,000 whose livelihood has been severely affected by the pandemic
Other progress:
• Government has cleared the outstanding power sector dues in tune of more than Rupee 220bn and refunds of more than Rupee 250 billion
• Power supply remained uninterrupted, resultantly exports and industrial output growth remained in double digit
• After very long-time rural economy has strengthened with record growth in crop yields and prices
• The country is also witnessing the construction boom led by construction package announced by Prime Minister
• More than Rupee 1,000 billion worth projects were approved in one year
• Construction of Dams initiated which will double the water storage from current 13 million acre feet and addition of 10,000 mega watts of electricity
• The country has scored overall well on health front, more than 150mn vaccines have been administered. Close to US$2bn spent on vaccines without provincial contribution
• Highest number of social and economic programs launched e.g Kamyab Pakistan, Sehat card, Ehsas Rashan, Kamyab Jawan, Mera Pakistan Mera Ghar, Kissan card etc
• Introduction of winter relief tariffs to industries, commercial and households
• Introduced the Textile, Auto, and SME Policies
• Focus on non-conventional products and market exports for diversification especially on IT sector related incentives
• Implemented the toughest FATF action plan in limited period
• Better administrative controls and productivity growth brought prices of essential food items down e.g. Wheat flour, Sugar, onion, potatoes, tomatoes, and pulses
Outlook:
• Going forward, we expect the growth to stay at 5%, exports $31bn, remittances $32bn, taxes Rupee 6,000bn, trade deficit to reduce in 2HFY22
• Recent pressures on Current account are due to commodity shock but risks are receding due to timely policy actions.
